Under the Plastic Surgery Is Cancer

Once again, a perception gap is distorting analysis, forecasting and understanding of events in Mexico. Outsiders seem to have the impression that economic performance, political reform and President Ernesto Zedillo’s leadership are improving. Inside the country the pessimism that has gripped public opinion since December 1994 is still deepening. Analysts outside Mexico, whether in the international financial institutions or the financial press, emphasize the positive: the country’s relatively stabilized macroeconomic structure. Mexicans from all walks of life stress the steady worsening of their fate: the deteriorating microeconomic situation and the pessimistic outlook for the future, given the constraints to economic growth.

These two views of Mexico can’t both be right.

The Zedillo boosters abroad point to a number of signs for optimism. The exchange rate seems to have finally stabilized at around 7.5 pesos to the dollar; the Bolsa is on a roll, having gained nearly 25% in dollar value since the beginning of the year; interest rates, though still high, have come down somewhat, and inflation, while exceeding the government’s predictions, is falling into line. Last year’s short-term debt of nearly $30 billion in government bonds known as tesobonos has been rolled over, and most private firms, however precarious their financial health, have reduced or eliminated the risk of defaulting on their international commitments. If to this rosy scenario one adds the higher growth figures for the second quarter--not a major achievement, given last year’s 10% contraction for the same period--there would seem to be solid grounds for an upbeat assessment of Mexico’s recovery and future. The question then is why few (if any) sectors in Mexico are optimistic, and why Zedillo and his team are more isolated, besieged and unpopular than ever.

There are some obvious explanations: Millions of Mexicans are jobless and deeper in debt than ever; the banking sector requires ever-expanding volumes of government cash to stay afloat, and domestic demand is not really recovering. It is impossible to see the economy expanding in any sustainable or significant fashion anytime in the near future, given its $170 billion in total foreign debt, which represents a greater percentage of the gross domestic product than was the case in 1982 when the debt crisis began.

Most important, perhaps, there is a growing feeling that the Zedillo administration, because of its disastrous first two years, will never really pick up steam, condemning the country to a third consecutive six-year presidential term of economic standstill. The workers, the business community, the church and large chunks of the ruling Institutional Revolutionary Party itself are thus understandably up in arms. More and more, the government’s only constituency is in Washington, which may explain American optimism: Washington has no choice.

What has driven so many previously optimistic Mexicans to despair is the sense of imminent danger generated by the country’s predicament. Mexicans who used to believe that their countrymen would endure anything, and that with time, the economy and everything else would improve, have begun to truly worry about the immediate future. They have discovered the absolute absence of any real strategy on the government’s part for dealing with any critical matter, whether adjusting the exchange rate or establishing an industrial policy, combating the drug trade or fighting poverty. Similarly, the inability of the political system to provide an arena for striking the broad social bargains the country needs is creating a feeling of frustration that no improvement in the stock market can dispel. Fifteen years of social regression and no economic growth can focus the mind in a fashion not unlike the gallows.

The two mistakes one can only hope will not be repeated this time around are easy to pinpoint. First, it would be preferable to distinguish between the brokerage firms’ view of the world and the approach that other foreign interests should take. For example, it makes perfect sense for Wall Street to be more comfortable with small-scale reentries into the Mexican market; it would be absurd for Washington to think that the immigration dilemma stemming from Mexico’s collapse is anywhere near an end.

The second mistake involves Mexico’s own image of itself. Almost at any cost, the country should understand that the international markets are the last source of analysis or forecasting to pay heed to. That is exactly the bill of goods former President Carlos Salinas de Gortari sold the Mexican people: that the nation was doing well because foreign headlines and portfolio managers thought so.

Of all the lessons Mexicans are having to learn, perhaps the first must be to trust again in their own insights.